Banks race to issue bonds for capital hike

Many banks have issued a large amount of bonds to raise capital in a move to meet high demand during year-end’s peak lending season and prepare to meet the State Bank of Vietnam (SBV)’s regulations on tightening the use of short-term funds for long-term loans from early next year.

In October alone, State-owned Vietcombank made three issues of nearly 3.3 million bonds at par value of 100,000 VND (4.27 USD), raising a total of 329.3 billion VND. The interest rate on the six-year bonds is fixed at 7.475 percent per year, much higher than the current rate of 6.6 percent per year applied for the bank’s 5-year saving deposits.

The month also saw two other State-owned banks – BIDV and VietinBank – issue two-year bonds worth a total of 3.45 trillion VND and 450 billion VND, respectively. Before this issue, BIDV made four bond issues in 2018 totalling 1.01 trillion VND while the figure for VietinBank was up to 18.6 trillion VND.

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Military Bank also successfully raised nearly 1.39 trillion VND through the issue of six-year and 10-year bonds. The interest rate on the bonds is floating and determined by the bank’s reference interest rate on the 12-month saving deposit rate plus 1-1.5 percent per year for five-year bonds and 1.8 percent for 10-year bonds.

VIB in October raised 2.2 trillion VND from three-year bonds at a fixed interest rate of 6.3 percent per year.

According to the banks, the proceeds will be used to supplement capital and improve their financial capacity.

Statistics from 28 banks showed that the total mobilised capital through the issue of valuable papers, including bonds, at the banks in the first nine months of this year reached nearly 346.63 trillion VND, up more than 11 percent over the beginning of the year.

The rise of the total mobilised capital through valuable papers was much higher than the 9.75 percent growth rate of banks’ saving deposits.

Besides the issue in the domestic market, some banks such as HDBank and VIB also planned to issue international bonds. HDBank, for example, expects to issue 3,000 convertible bonds worth 300 million USD through private placement in 2018 or 2019.

According to experts, banks prefer to issue bonds to meet rising capital demand at year-end and prepare long-term capital to satisfy the SBV’s regulation on reducing short-term funds for long-term loans from 45 percent to 40 percent, effective from January 1, next year.

For State-owned banks like Vietcombank, VietinBank and BIDV, increasing capital is one of their most urgent tasks at the moment, because if they cannot do so before 2020, their capital adequacy ratio (CAR) will fall below the minimum level stipulated by the SBV and under Basel II norms – a set of banking laws and regulations issued by the Basel Committee on banking supervision to enhance competition and transparency in the banking system and make banks more resistant to market changes.

However, raising capital has not been easy as the banks are struggling to find foreign investors while they are not allowed to hold on to dividends to increase capital, so the banks have decided to issue bonds.